Ays Presentation V10

http://www.youtube.com/ watch?v=i5QgTYjK4qA

ASPEN YOUTH SERVICES ANDREW BOZZELLI LAITH FAROUQI JASMIN FARSHI SOHAM TILLU NOVEMBER 24, 2009

Commercializing Innovation Team 11 – HPV Ventures

AYS| 1

What is Aspen Youth Services (“AYS”) Source: Case 

Business Description 

Treatment of “at-risk” youth is an emerging industry, composed of  Education Services: Residential (Private) and Outpatient/Day-School

(Government)  Behavioral Treatment: Residential (Private), Wilderness (Private), and Outpatient/Day-School (Government)  Juvenile Correctional Services: Residential (Government)  

Background Los Angeles-based provider of both residential and non-residential special education, behavioral treatment, and rehabilitation/correctional services  AYS currently operates 17 programs in 7 states 

 

Stage/Opportunity

AYS is getting spun-out of College Health Enterprises (“CHE”), and is looking for additional capital in order to fund growth strategies  Looking to focus on certain market segments, and expansion into new markets Commercializing Innovation AYS| 2 Team 11 – HPV Ventures  Growth-stage (40% discount rate) 

Recommendation 

AYS = Love Deal

 

Strategic Focus and Changes  Target Market: High-end Private Pay (non-government) customers with need for “at-risk” youth services in the education and behavioral services  Exit Juvenile Correctional Services  Not a Love Deal  Company is cash-constrained  Customers tend to be low-income  Government is a single payer, cash collection is slow and cumbersome

 

Invest   

Commercializing Innovation Team 11 – HPV Ventures

Rollout new therapeutic residential educational facility in Algonquin, IL (similar to Mt. Bachelor Academy) Peak Cash Need = $5.8 million Unit model 10 year IRR = 34.6% and Cash-on-Cash = 6.4x AYS| 3

Macro Industry Structure 

Overall market size for the treatment of at-risk youth is an estimated $40 – 50 billion Special Education - $32 billion  Treatment - $4 - $7 billion  Corrections - $5 billion 

 

Highly fragmented Approximately 10,000 – 15,000 organizations consisting mostly of small “mom and pop” shops  Organizations limited geographically  In recent years a trend of consolidation has occurred 

 

Market growth is attributed to:     

Commercializing Innovation Team 11 – HPV Ventures

Growing number of adolescents Decline of quality in the public educational system Increasing rate of juvenile crime Increased demand for innovative behavioral treatment modalities Court mandates to downsize overpopulated state-run facilities 

AYS| 4 Source: Case

S.U.C.C.E.S.S. Criteria Size of Market Uncertainty

A B B+ B-

D e scr ip t ion Overall market size for the treatment of at-risk youth is an estimated $40-50 billion Hiring and retention of new management team and quality staff Potential liability issues Growth is acquisition-driven

Entry Barriers

B+

Target customer is high-end families with the need for assistance with their at-risk children Partnerships with consultants, schools, therapists, and other advisors/counselors Market consists of mostly small, geographically limited organizations Educational services competitors: CEDU, Shankman Orthogenic School (Univ. of Chicago) Behavioral treatment competitors: Magellan Health Services, Partners in Parenting Licenses and certifications Experience and expertise Centrality: relationships with those you are partnering with (i.e. referrals)

Suppliers

B-

Skilled employees such as nurses, program advisors, therapists, and counselors. Reliance on finding new land and buildings for new facilities Contractors for building out new/acquired spaces

Substitutes

B+

Boarding schools, counseling, boot camps, state-run facilities, and wilderness programs

Customer Competition

Commercializing Innovation Team 11 – HPV Ventures

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M.M.M.M. Criteria

D e scr ip t ion

Market (Local)

A-

Chicago land (i.e. Woodstock) provides ample opportunities for drawing at-risk youth from the metropolitan area as well as surrounding Midwest towns Large amount of high-end private payers Large acreage for residential campus/grounds

Model

B+

Hybrid – Facility based and Geographic based model Residential therapeutic educational care facility built for 80 students, length of stay between 8-14 months Revenue consists mostly of tuition averaging $5,000/month for 12-month program Negatives: acquisition-driven, difficulties in scalability, liability issues

Managem ent

B-

Chairman, who along with his family are the chief owners of AYS, has successfully grown the business from its inception in the early 1970’s President/CEO has several years of experience and in 1997 was named one of the 100 most influential healthcare leaders in California by California Medicine Magazine Opportunity to add to the management team to find a new VP of Business Development to lead acquisition strategy, as well as find a new Sr. VP to lead Midwest growth efforts that has centrality to the Midwest Sr. VP – Midwest Operations: Peter Myers, Co-Exec. Director Orthogenic School

Money

B

Significant capital is necessary to fund acquisitions Additional time and financial resources required to permeate Midwest market Potential grant opportunities from federal/state governments

Commercializing Innovation Team 11 – HPV Ventures

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F.A.C.E.S. Criteria

D e scr ip t ion

FOCUS

B

Currently operating in education, treatment, and correctional Limited evidence of a focused growth plan

ASH

B

Upper management have solid backgrounds, however additional due diligence is necessary to fully determine ASH

CAPABILITY

B

Upper management have proven capabilities, however there is a need for new management team members to lead the growth strategy especially in new regions Acquisition-driven growth model can be difficult to implement

EXIT

B+

Exit opportunities exist for a potential IPO or strategic acquisition

SCALABILITY

B

Positives: numerous current small organizations to acquire provides expansion into new regions Negatives: difficulties in acquiring current businesses (i.e. capital, culture)

Commercializing Innovation Team 11 – HPV Ventures

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Analogs – Selection Criteria Criteria

Description

At-risk youth

Youth with high risk of failing at school; 13-18 years

Residential program

Longer term (at least 12 months) school program with on-campus boarding

Treatment program

Treatment for mental, behavioral and physical disorders

“Love deal”

Focus of customer is wellbeing opposed to price

High quality staff service

High grades for quality of service provided

Website optimization

The use of website to market and promote services, communicate with prospects and customers, and generate revenue

Acquisition-driven growth

Company grows through the acquisition of existing businesses

Referral

Prospect customers are being referred through a referral channel, such as, psychiatrists, education consultants, etc…

Commercializing Innovation Team 11 – HPV Ventures

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Analogs – Qualitative  

Stage

Advanced Weight Loss & Rejuvenation Centers  ANASAZI Foundation Beacon Education Management Corinthian College Correctional Corp of America

Growth Mature Mature Growth Mature

Eckerd Youth Alternative Educational Services of America GEO Group (GEO-N) Island View Kindred Health Care (KND-N) Magellan Health Services (MGLN-O)

Growth Growth Growth Growth Mature Growth

x 

Nobel Learning Communities, Inc. (NLCI) Nutrisystem (NTRI) Res-Care (RSCR-O) Three Springs Turnabout Stillwater Academy Turning Winds Academic Institute  Youth Services International (YSI) Universal Health Services, Inc. (UHS-N)

Mature Growth Mature

x x  x

Mature

x x

Commercializing Innovation Team 11 – HPV Ventures

Pub At- Tre lic risk  atm youth ent  pro gra m

x  x  x  x 

x  x

Res We Lov High  Grow Ref iden bsit e  qualit th by  erra y  tial  e  deal staff  Acqu l edu opti servi isitio cati miz ce n on atio n

x  x  x  x 

x 

x 

x 

x 

x 

x  x  x  x

x  x  x  x

  x 

 

  x  x x  x  x  x x

 

x x x  x  x x

 

x x  x  x  x x

x  x  x x x

x  x 

x x  x x x x

x 

x x  x x  x  x  x x

x

  x  x

x x  x  x  x

x 

x x 

x  x    x  x  x

x  x  x 

x x  x x  x 

 

x

x  x

x

x x

x  x  x  x  x  x    x  x  x x x  x x  x x

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Analogs - Quantitative Data Select ANALOGS Source ed Analo gs

Public Ticker

Revenue ($mil)

1 Year COGS ($ COGS % SG&A ($ SG&A % 3 Yr Sales mil) (Revenue mil) (Revenue CAGR Growth ) ) Sales % Growth %

Cash Depr & CapEX Flow Amort ($mil) from Operati ons

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

$4 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

(1) (2)

D

(1) (2)

D

Advanced Weight Loss & Rejuvenation   Centers  ANASAZI Foundation  

(1) (2)

D

Beacon Education Management

 

$13,390 

0.6% 

$815 

6.1% 

$8,745 

65.3%

0.1%

$2,575 

$1,238 

$1,221 

(1) (2)

D

Corinthian College

COCO

$1,069 

14.5% 

$581 

54.3% 

$392 

36.7%

3.4%

$14 

$45 

$37 

(1) (2)

D

Correctional Corp of America

CXW

$1,599 

8.1% 

$1,123 

70.3% 

$80 

5.0%

6.3%

$274 

$91 

$158 

(1) (2)

D

Eckerd Youth Alternative

 

$956 

N/A

$949 

99.2% 

N/A

N/A

N/A

N/A

N/A

N/A

(1) (2)

D

Educational Services of America

 

$88 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

(1) (2)

D

GEO Group

GEO-N

$1,043 

1.8% 

$822 

78.8% 

$69 

6.6%

19.4%

$71 

$37 

$50 

(1) (2)

 

Island View

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

(1) (2)

D

Kindred Health Care

KND-N

$4,151 

(1.6%)

$320 

7.7% 

$2,754 

66.3%

-0.9%

$183 

$122 

$53 

(1) (2)

D

Magellan Health Services

MGLN-O

$2,625 

21.8% 

$2,439 

92.9% 

$0 

0.0%

15.8%

$268 

$61 

($1)

(1) (2)

D

Nobel Learning Communities, Inc.

NLCI

$206 

12.8% 

$176 

85.2% 

$19 

9.0%

8.4%

$14 

$7 

$9 

(1) (2)

D

Nutrisystem 

NTRI

$688 

(11.5%)

$339 

49.2% 

$251 

36.5%

6.7%

$92 

$9 

($26)

(1) (2)

D

Res-Care

RSCR-O

$1,544 

7.7% 

$1,385 

89.7% 

$59 

3.8%

5.8%

$47 

$23 

$30 

(1) (2)

 

Three Springs

 

$13,405 

0.7% 

$830 

6.2% 

$8,760 

65.3%

0.1%

$2,575 

$1,238 

$1,221 

(1) (2)

 

Turnabout Stillwater Academy

 

$13,406 

0.7% 

$831 

6.2% 

$8,761 

65.4%

0.1%

$2,575 

$1,238 

$1,221 

(1) (2)

 

Turning Winds Academic Institute 

 

$13,407 

0.7% 

$832 

6.2% 

$8,762 

65.4%

0.1%

$2,575 

$1,238 

$1,221 

(1) (2)

 

Youth Services International

YSI

$13,409 

0.7% 

$834 

6.2% 

$8,764 

65.4%

0.1%

$2,575 

$1,238 

$1,221 

(1) (2)

D

Universal Health Services, Inc.

UHS-N

$5,022 

5.7% 

$2,133 

42.5% 

$1,591 

31.7%

6.2%

$484 

$194 

$43 

Commercializing Innovation Team 11 – HPV Ventures

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Analogs – Summary Analogs

Strengths

Weaknesses

Magellan Health Services

High quality services hospital  Big emphasis on the "Love Deal" Provides behavioral health facilities

Does not target "at-youth" only Does not offer "Residential Education"  programs

Res-Care

Targets "At-Youth" Big emphasis on the "Love Deal" Provides behavioral health facilities Growth by acquisition

Does not target "at-youth" only Does not offer "Residential Education"  programs

Nobel Learning Communities, Inc. High end educational center Some emphasis on the "Love Deal"

Does not target "at-youth"  Does not offer residential programs

GEO Group

Target "At-Youth" Growth through acquisition  Treatment program

No emphaise on the "Love Deal" Big emphisis on the "Correctional"  Services

Universal Health Services, Inc.

High quality services hospital  Big emphasis on the "Love Deal" Provides behavioral health facilities

Does not target "at-youth" only Does not offer "Residential Education"  programs

Commercializing Innovation Team 11 – HPV Ventures

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Income Statement As (Dollars in Thousands) Revenue assumptions

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Income Statement Assumptions Continued….

COG assumptions

Staff Commercializing Innovation Team 11 – HPV Ventures

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Income statement and cash flow assumptions continued…

G&A Assumptions Executive Assistant

Legal Secretary

Commercializing Innovation Team 11 – HPV Ventures

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Unit Model (Investment Assumptions)

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Unit Model – Income Statement Assumptions

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Unit Model – Income Statement Assumptions (cont.)

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Unit Model - Advertising Assumptions

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Unit Model – 10 Year Income Statement

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Unit Model – 10 Year Cash Flow Analysis

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Unit Model - Correctional Segment Analysis

Recommendation AYS

should exit correctional segment because Lack It

of strategic fit (It is not a love deal)

is a single payer business (Government is the primary payer).

Low

margins compared to educational and treatment segments.

 Modeling

correctional segment

Correctional The

sales will be driven by direct sales approach rather than mass media.

Long

term service contracts with the government (state and federal) will be required.

Closer If

segment can be modeled in similar fashion as the other two segments.

relationship with charitable foundations will be required.

these initiatives are achieved then correctional segment will have economics of a utility i.e. predictable but low returns.



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Rollout

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Roll-Up Assumptions

(Actual General & Administrative Expenses)

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Roll-Up

(Consolidated)

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Return Matrix Return Matrix

Year 7 EBITDA Multiple

HPV Returns

5.5x

27%

36%

42%

4.2x 5.0x

25%

6.2x 34%

40%

3.8x 4.5x

23%

8.3x

5.7x 31%

IRR 7.6x

CoC

38%

3.4x

5.1x

6.8x

50%

75%

100%

$13.21mm

$19.82mm

$26.43mm

Ope rating Performance (EBITDA)

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APPENDIX

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Unit Model – 24 Months

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Unit Model – 24 Months (cont.)

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Market Research 

Goals



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Market Research (cont.) 

Estimated Costs of conducting Market Research:



Type of Research

Individual Cost

Total Cost

Focus Groups 

$8,000 per group, 3-groups

$24,000

$500 per interview, 25 families

$12,500



 Phone Interviews with

 Parents/Families 

Phone Interviews with Potential $500 per interview, 20

$10,000

Referrals 



Other – including market reports 

Various

$10,000

 

Total Estimated Cost = $56,500   

Commercializing Innovation Team 11 – HPV Ventures

Source: Class Notes (Application of Market Research for Validation)

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Analog Detail - A

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Analog Detail - B

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Analog Detail - C

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Analog Detail - D

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Analog Detail E

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References

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LINKS 

Can I Afford It?" (Windows Media) (Real Player)  "[You get to the point where you say] I don't care what I have to do. I am going to get them the help they need. And suddenly the money doesn't matter….It was worth every penny.“  http://www.aspeneducation.com/video/parentsspeak.html

 

Commercializing Innovation Team 11 – HPV Ventures

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